Court to Hear Renters’ Suit Over Income Standards

Even though she was on welfare, Muriel Jordan thought she could afford the $275 to $360 monthly rent on apartments she saw advertised in the Northern California city of Woodland in September, 1985.

She learned that prospective tenants must have monthly incomes equal to three times the monthly rent. With an Aid to Families with Dependent Children benefit of only $698, she could not apply.

Jordan and Tamela Harris, another rejected low-income apartment seeker, sued the owners in an important test of the state’s civil rights law that has reached the California Supreme Court. The court’s ruling, due within 90 days, could have broad impact--not only for renters but for loan and credit applicants as well.

The justices will hear arguments today on the two key issues:

* Does the minimum-income requirement discriminate on the basis of “economic status”?

* Does the requirement constitute sex discrimination because it adversely affects women, who as a group earn less than men?

Legal aid attorneys representing the two women, backed by lawyers for the state, are asking the high court to expand the Unruh Civil Rights Act to bar the minimum-income test as arbitrary economic discrimination.

The 1959 law--one of the most expansive in the nation--for decades has provided protection against racial, religious and other forms of bias. Previous court rulings have widened the scope of the act. Whether the new, more conservative court under Chief Justice Malcolm M. Lucas will do so is an open question.

Lawyers for Jordan and Harris contend it is illegal to reject renters in the belief that their incomes would not allow them to make the rent each month. Alternative tests--such as a renter’s past history and references--would screen out risky tenants, they say.

“Stereotyping low-income people as not having the ability to pay the rent is exactly what the Unruh Act prohibits,” Manuel A. Romero, an attorney for the two women, said last week. If the high court upholds the three-times-the-rent requirement, he said, countless low-income renters could find themselves in the “incredible situation” of being denied housing without a chance to show that they could afford it.

The apartment owners, backed by a coalition of financial institutions, defend the income test as a prudent, effective and nondiscriminatory screening tool. Such income requirements at various levels are widely employed as a protection against costly rent defaults and eviction proceedings that can take from 2 to 9 months, attorneys say.

Allowing courts to decide what income standards are “reasonable,” the landlords and their backers say, would open the way for a flood of legal challenges--not only to rental practices but an array of financial standards imposed by creditors on consumers. They warn that judges not only would effectively be selecting tenants, but deciding which car buyers, home purchasers, credit-card seekers and others would be granted loans and credit.

“What’s to stop anyone turned down on some financial application from claiming discrimination?” asked Donna May Campbell, an attorney for the California Apartment Assn. “A ruling like that could have huge implications for how people do business in this state.”

Jordan and Harris, heads of their respective households, brought the suit in July, 1986, against the owners of the Guardian Oaks and Acacia Apartments in Woodland.

Both women contended that they could pay the rent and argued that the landlords should base their requirements on the tenants’ rental history and references, rather than an income standard. (Since then, their attorneys say, Jordan has found housing in the Sacramento area and Harris has moved out of California.)

A Yolo County Superior Court judge upheld the legality of the income test, observing that it would be unfair to burden landlords with the alternative of trying to verify every applicant’s rental history and background.

A state Court of Appeal in Sacramento reinstated the suit, saying the burden was on apartment owners to show that the income requirement was reasonable. The court acknowledged that it was “not unmindful” of the potential impact the case could have on all businesses that employ credit and lending guidelines. If limits are to be imposed on the scope of the Unruh Act, it should be done by the Supreme Court or the Legislature, the panel said.

The appeal court rejected the renters’ claim that the income requirement was illegal because of its disproportionate impact on women. No California court has yet applied the Unruh Act to policies that apply to everyone but unintentionally affect some segment of the public, the panel noted. To do so, it warned, would “open the floodgates” of litigation.

In briefs filed with the state Supreme Court, lawyers for the landlords argued that the civil rights law should not be extended to bar a policy such as the income test that establishes objective financial criteria and makes no distinction on the basis of race, religion, sex or other personal characteristic.

The lawyers said that if any policy could be challenged because it had an “adverse impact” on a group, then landlords, lenders and other businesses could be sued by everyone from drug addicts to prison inmates.

“The litigation possibilities are endless,” said Gary E. Rosenberg, an Oakland attorney representing the apartment owners.

The landlords drew support from the California Bankers Assn., the California League of Savings Institutions and the California Assn. of Thrift and Loan Companies. All expressed concern that a ruling for the renters could disrupt the entire credit industry.

The groups pointed out that lenders set varying financial tests for credit-card holders, depending on the risk of default that they want to take. Allowing challenges to the “reasonableness” of those tests would force firms to make expensive studies to justify their policies and then spend time and money defending them in court, inevitably increasing the costs of obtaining credit, the groups said.

Attorneys for Jordan and Harris argue that the civil rights law was intended to prohibit any discrimination by a business that arbitrarily harms a particular group, such as low-income renters.

The statute specifically bars bias by race, religion, color, sex, national origin, ancestry, blindness and other physical disability. The high court has said that such categories are “illustrative” rather than “restrictive,” and that other groups--such as families with children seeking housing--are protected as well.